Understanding the 3-D Metal Printing Boom of 2013

According to 3-D printing insights firm Wohlers Associates, the metal 3-D printing industry experienced tremendous growth in 2013. In total, 348 metal 3-D printers were sold in 2013, representing an increase of 75.8% over 2012 activity. While this strong unit growth is certainly welcomed news for 3D Systems (NYSE: DDD) , ExOne (NASDAQ: XONE) , and Arcam (NASDAQOTH: AMAVF) , which all offer competing metal 3-D printer lines, it's difficult to gauge whether this growth can be primarily attributed to actual increases in demand, or if General Electric's (NYSE: GE) acquisition of Morris Technologies in late 2012, which took an estimated 50% of 3-D metal printing capacity off the market, is at least partially responsible.

A driving forceWhen it comes to 3-D printing expertise around metals, it doesn't get much better than Morris Technologies. Before becoming part of General Electric's aviation operations, Morris offered a range of 3-D metal printing services to customers in need of high-precision metal 3-D printing prototyping and manufacturing. Nowadays, Morris is helping General Electric 3-D print thousands of fuel nozzles for its upcoming Leap jet engine, which are expected to take to the skies in the coming years.

The consequence of General Electric's acquisition was that metal 3-D printing capacity in the service segment became significantly constrained, which, according to rapid prototyping company Incodema Group, took an estimated 50% of 3-D metal printers out of public service. This finding resulted in Incodema forming a new company to fill the gap and "rapidly acquire" 50 metal 3-D printers. Based on this information, 3D Systems, ExOne, and Arcam investors probably shouldn't get overly excited about what appears to be robust metal 3-D printing growth, because a significant percentage of the growth experienced in 2013 could've largely been driven by replenishing existing capacity that was taken off the market by GE.

The other side of the coinAlthough it may be difficult to pinpoint exactly how much growth resulted from General Electric's acquisition, investors shouldn't completely write off 2013 as an anemic year for 3-D metal printer growth. There are more 3-D metal printers in operation today than there were at the end of 2012, and industrial giants like Rolls Royce and Airbus have also been building out their 3-D printing capacity to utilize the technology on a larger scale. This has created an opportunity for 3D Systems, ExOne, and Arcam to market their metal 3-D printers, which, if successful, could pave the way for highly profitable streams of recurring revenue from material sales over their respective printer's lifetimes. Going forward, 3D Systems, ExOne, and Arcam investors should continue to focus on the needs of large-scale manufacturers and what 3-D metal printing technology is best suited for the job.

The investing angleBecause 3-D printing is a layer-by-layer additive manufacturing process, complexity and efficiency come at practically zero added cost, making it an ideal candidate for aviation applications, where complicated designs and expensive materials like titanium are the norm. The 3-D printing technology best suited for intricate aviation applications today is selective laser sintering, or SLS.

On a high level, SLS uses a laser to heat and melt a layer of powder metal, which is fused to a previous layer of already-fused metal. After the laser completes its pass, a fresh layer of powder is deposited, and the process is repeated thousands of times until an object is formed. General Electric's 3-D printed fuel nozzles makes use of SLS technology -- a testament that SLS can reliably manufacture highly intricate parts and can stand up to the stresses of being inside a jet engine.

Between 3D Systems, ExOne, and Arcam, 3D Systems is the only company that utilizes SLS technology in its direct metal line of 3-D printers, putting it in the best position to benefit as the aviation industry continues growing its reliance on 3-D printing. During 3D Systems' recent first-quarter conference call, it came to light that the company is developing a much larger format direct metal 3-D printer geared toward large-scale manufacturers needing bigger build volumes. Greg Morris of General Electric has acknowledged that build volume is a shortcoming in current generation metal 3-D printers, and the company is awaiting machines that offer three to four times current build capacity.

Arcam and ExOne have been developing their technologies and materials to become more competitive in aviation. Arcam has been working to improve the resolution of its electron beam melting technology, which is similar to SLS, but instead uses an electron beam and a vacuum chamber, and isn't as detailed as SLS. ExOne recently developed a new metal alloy, inconel 625, which has achieved greater than 99% density, a must-have characteristic for the needs of the aviation industry. In other words, Arcam and ExOne investors should expect these companies will begin to offer more competitive 3-D printing solutions for aviation applications in the future.

Putting it all together Although 2013 was a strong headline year for metal 3-D printing, the dynamics of General Electric acquiring Morris Technologies may have artificially inflated the segment's growth rate. At the same time, large-scale manufacturers are building out their 3-D printing footprints to make better of the technology within their operations. Going forward, investors should monitor 3-D metal printer sales at 3D Systems, ExOne, and Arcam to get a better sense of how the metal 3-D printing market is developing and which technologies are most favored.

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Steve Heller owns shares of 3D Systems, Arcam, and ExOne. The Motley Fool recommends 3D Systems and ExOne. The Motley Fool owns shares of 3D Systems, ExOne, and General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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I am disappointed that your analysis did not include EOS GmbH. Greg Morris, former CEO of Morris Technologies and now leads Additive Strategy and Business Dev. for GE Aviationhas been prominently taped in front of their machines demonstrating their LEAP engine fabrication. He also lists them in his presentation at the TCT Show + Personalize 2013 last December. While they are not publicly traded, demand for their state-of-the-art DMLS (Direct Metal Laser Sintering) is a highly relevant share of this market and will likely take sales away from DDD in particular.

IMHO what makes the aviation industry an early adopter and promoter of this technology is that their product is a low volume, high cost one. They need the high precision and can better tolerate the lower build volumes. Rocket engines even more so. :-)

"Greg Morris of General Electric has acknowledged that build volume is a shortcoming in current generation metal 3-D printers, and the company is awaiting machines that offer three to four times current build capacity."

Great article, it will be interesting watching this technology evolve.

Demand is way above supply right now for metal printers. They can't make them fast enough, industries as now realizing how useful the metal 3D printers are.

My father is an industrial machine salesmen with 50 years experience and he has always said that the metals market hits first for transformative technologies; expect plastics and wood to embrace 3D printing in the following years.

"ExOne recently developed a new metal alloy, inconel 625, which has achieved greater than 99% density"

I can't tell whether the article is incorrect or just poorly worded. But to be clear, ExOne did not develop the alloy itself. Inconel 625 is a fairly common nickel superalloy that has existed since at least the 1960s.

What they have developed are the processing parameters to achieve >99% density with that alloy.

Using a standard commercial alloy means that their customers can use something they're already familiar with. But it also means that ExOne may not have much protectable IP regarding the process to give them a long-term advantage.

Technical question: it seems to me that 3D metal printing would give you objects that are similar to castings: hard, inflexible, random grain pattern. What if you wanted to print something that was more like a forged piece of metal?

ajonline01 -- There aren't too many funds in the space, and they charge considerable management fees. I'd probably think about buying a basket of 3-D printing stocks instead and making your own mini fund that represents a small percentage of your portfolio. There are only a handful of publicly traded pure-play 3-D printing companies out there.

Sending report...

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